Comparing Employer-Sponsored and Federal Exchange Plans

Wide Variations in Cost Sharing for Prescription Drugs

Published in: Health Affairs, v. 34, no. 3, Mar. 2015, p. 467-476

Posted on RAND.org on March 09, 2015

by Christine Buttorff, Martin S. Andersen, Kevin R. Riggs, G. Caleb Alexander

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Research Questions

  1. How much do prescription drug benefits vary across plan type (e.g., HMO vs. PPO) and across metal tier (bronze, silver, gold, and platinum) in the new federally-facilitated health insurance exchanges?
  2. Are prescription drug benefits in the federal exchanges as generous as they are in employer-sponsored plans?

Just under seven million Americans acquired private insurance through the new health insurance exchanges, or Marketplaces, in 2014. The exchange plans are required to cover essential health benefits, including prescription drugs. However, the generosity of prescription drug coverage in the plans has not been well described. Our primary objective was to examine the variability in drug coverage in the exchanges across plan types (health maintenance organization or preferred provider organization) and metal tiers (bronze, silver, gold, and platinum). Our secondary objective was to compare the exchange coverage to employer-sponsored coverage. Analyzing prescription drug benefit design data for the federally facilitated exchanges, we found wide variation in enrollees' out-of-pocket costs for generic, preferred brand-name, nonpreferred brand-name, and specialty drugs, not only across metal tiers but also within those tiers across plan types. Compared to employer-sponsored plans, exchange plans generally had lower premiums but provided less generous drug coverage. However, for low-income enrollees who are eligible for cost-sharing subsidies, the exchange plans may be more comparable to employer-based coverage. Policies and programs to assist consumers in matching their prescription drug needs with a plan's benefit design may improve the financial protection for the newly insured.

Key Findings

  • Out-of-pocket costs for prescription drugs vary widely depending on both the type of plan and the "metal" tier a consumer chooses in the federal exchanges.
  • Plans within a given tier must have the same actuarial value (AV)—the percentage of total costs that insurance pays for an average patient—but plans use different cost sharing structures to achieve the same AV.
  • Co-pays and coinsurance rates differ considerably across drug formulary tiers (e.g., generic, brand-name, or specialty), types of plans, and metal tiers.
  • While exchange plans have lower average premiums than employer-sponsored plans, they can be more expensive to use for prescription drugs when cost-sharing and deductibles are taken into account.
  • Cost-sharing subsidies for low-income enrollees increase the generosity of plans in the silver tier, making them more comparable to employer-based plans.

Recommendation

Given the variation in out-of-pocket expenses for prescription drugs in the federal exchange plans, policies to help consumers navigate their options may reduce unforeseen expenses and improve the overall functioning of the health insurance exchanges.

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